China seems poised to tackle Facebook’s Libra head on with its own cryptocurrency; however the strength of China’s central bank digital currency is doubtful.
After feeling the pressure from Facebook’s Libra push, Chinese officials proclaimed just weeks ago that they were getting ready to unleash China’s own central bank digital currency to contend with and probably stop Libra.
Now, China claims its state-run cryptocurrency is prepared to go. However can it effectively counteract the threat to China’s financial system that Chinese officials say Facebook’s crypto project poses?
Within a matter of weeks, China has gone from simply accelerating its plans for its digital currency to suddenly, after 5years of teasing, claiming it’s currently prepared for time. However these words might have a secondary meaning, mentioned Mati Greenspan, senior analyst at eToro, in an interview. Greenspan said that whereas the Chinese government has the technical prowess to unleash a cryptocurrency that quickly, it still needs extensive political capital to get off the bottom totally.
“This wouldn’t be troublesome for the Chinese government to put out in a week or 2,” he said. “This has more to do with political power. Capital controls are terribly tight in China, and they wish to keep a powerful eye on money supply. Therefore what they most likely mean when they say ‘it’s ready to go’ is that they merely have the willpower to put it out.”
Greenspan additionally said that China’s cryptocurrency is in no position to push Libra out fully. It’s not even on the same “playing field,” he said. For one factor, Libra will be a worldwide cryptocurrency, used by customers in multiple regions. China’s currency is designed for users within its own borders.
China has had a comparatively mixed relationship with cryptocurrency. The country has initiated a ban on all foreign exchanges and initial coin offerings (ICOs) and has even thought of ending all bitcoin-mining operations.
Greenspan believes that China’s state-run crypto is perhaps designed for management purposes—a means of keeping an eye fixed on all financial activity from here on out.
“They desire a larger level of management and surveillance,” he said. “This will provide them a bit additional hands-on authority. This currency isn’t designed to give individuals financial freedom, like other kinds of crypto, however rather to provide the Chinese government with the simplest way to monitor transactions.”